Should Lenders Assume More Responsibilities in the Small Business Administration 7(a) Loan Program?

CED-78-88: Published: Apr 4, 1978. Publicly Released: Apr 4, 1978.

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Under the 7(a) loan program, the Small Business Administration (SBA) makes or guarantees loans to small businesses to finance plant construction, conversion, or expansion; to purchase equipment, facilities, machinery, supplies, and materials; and to supply working capital. The feasibility of transferring reasonsibility for approving, servicing, and liquidating 7(a) guaranteed loans from the SBA to the private lenders participating in the program is being investigated by Congress.

There was no consensus among the private lenders interviewed concerning the feasibility of transferring more 7(a) responsibilities to private lenders. Concerns expressed by officials of private lending institutions, the SBA, or the American Bankers Association regarding transferring 7(a) loan responsibilities to private lenders included: (1) current legislation does not permit SBA to delegate responsibility for committing Federal funds to private lenders; (2) there is a potential for abuse and conflict of interest in permitting private lenders to make decisions on loans guaranteed by the Federal Government; (3) eligibility requirements of the 7(a) loan program change frequently; (4) the Federal Government may lose its priority in bankruptcy proceedings if nongovernmental agencies conduct liquidations; (5) private lender personnel are changing constantly and are unable to develop expertise in the 7(a) program; and (6) there may be increased adminstrative burden and cost to private lenders because of additional responsibilities.

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